AmericanOpinion

The state can't save journalism

Schumpeter’s “creative destruction” is sweeping across the media landscape

By Tom Switzer

Several decades ago, before the free-market fervour of the Thatcher-Reagan years set in, Joseph A. Schumpeter published an insightful book on the essence of capitalism. Writing in Capitalism, Socialism, and Democracy, the leading economist argued: “Capitalism … is by nature a form or method of economic change and not only never is but never can be stationary.” Subsequently, it depends on “creative destruction”, a process that incessantly destroys old structures of economics and creates new ones to meet new market demands.

When you ponder the digital evolution of media and the rise of the relentless 24-7 news cycle, not to mention the decline of newspapers as a business in the internet age, it is fair to say that Schumpeter’s “creative destruction” is roiling the fourth estate.

Think about the whirlwind of change during the past 15 or so years: the internet has broken up long-time media models. Advertisers are increasingly leaving print outlets to embrace search engines. Many home-town American newspapers have shut down and virtually all newspapers across the globe are shedding jobs. Establishment news magazines such as Newsweek and U.S. News & World Report no longer exist in the physical sense. AOL merges with Time Warner. Amazon.com buys The Washington Post. Barriers to entry in publishing have tumbled. Readers are increasingly using their iPhones or iPads to get news and information, and so even the mobile industry has been upended.

And yet nearly everyone recognises that a certain amount of change is a good thing. Seasons observers of the media fret and wail about the radically changing nature of journalism: that opinion is increasingly replacing serious news reporting, that quality in-depth feature articles and segments are being radically shortened, that print editions of newspapers are an endangered species. But even the critics agree that times do change, that business models must adapt accordingly, and that the digital evolution of the media industry may lead a useful spur to productivity in ways that will help media companies create new employment opportunities we often can’t yet imagine.

Changing the business model is unsettling, but the evidence shows that savvy media outlets can adapt and prosper. Mary Kissel, writing in this issue, explains how the newspaper she helps edit, the Wall Street Journal, has succeeded here. So, too, has its competitor, the Financial Times, one of the first newspapers to charge readers for access to its online facilities.

Last year, according to the New York Times, the number of digital subscribers, now more than 300,000, surpassed the print circulation of the FT. Mobile devices now account for one quarter of the FT’s digital traffic and 15 per cent of news subscriptions. What appeared to be a destructive process has ultimately helped the FT adapt and substantially increase its paying digital audience. The upshot here is that if high-quality news and analysis media outlets provide such high value public knowledge, and so turn the news distribution technology to their advantage, then customers will be prepared to pay for its content.

Indeed, despite the pain that the process of creative destruction causes to certain companies and groups, it is not much different than any other industry buffeted by technological and economic change. The shipping industry, for example, changed radically with the advent of containerisation.

Nor is the process of creative destruction confined to industries. Many nations have undergone a radical experiment in free-market reforms that has led to many benefits but also has been fraught with the danger of unintended consequences. When Australia, for instance, embraced a full-fledged reform agenda to modernise the economy in the mid 1980s — tariff cuts, lower taxes, budgetary and low inflation discipline, financial and exchange-rate deregulation, privatisation of government-owned businesses — the nation paid a price in gain as well as loss. The benefits included a less inflation-prone economy, a surge in productivity, lower interest rates, and a wider choice of goods and services at lower (real) prices, and the economy’s improved its ability to weather external financial shocks and keep growing.

Some Australians, however, also underwent some painful adjustment: Pauline Hanson’s One Nation movement in the late 1990s was, in many ways, a backlash against economic change and the social dislocation involved in the process of creative destruction. But, as Schumpeter recognised in a different context, the same forces that bred this insecurity — the information age revolution and the spread of global capitalism — could never be stopped. To their great credit, Australian political leaders — Bob Hawke, Paul Keating, John Howard, Peter Costello — knew that a nation that pretends that the changes accommodating these irresistible forces can be ignored will become poorer and more despairing.

That same process of creative destruction affects the media landscape at home and abroad. And it raises all sorts of questions about public knowledge and the journalist profession that sustains the communications sector.

Has the public confidence in the rigour and usefulness of the news media declined in a permanently damaging way? If traditional news has become a toxic stew of violence, opinion, and gossip, are we looking at life after truth? Has the technological and economic disruption of the media business affected journalism’s ability to hold institutions accountable? Will the business of serious reporting vanish? Or will it take new forms and adapt, with newspapers merely growing their audiences online even as sources of their revenue change?

Who determines what information is considered important after the traditional bundle of news has been dismantled? What are the implications for social cohesion, the health of our democracies, and public policy making? Do social media outlets represent a welcome corrective to the imperfect closeted journalism of the past? Is the market for news being set by audiences’ tastes and expectations or the incentives and preferences of media organisations and journalists?

Anyone wanting sound responses to these questions should consult the writings of Jay Rosen, Mary Kissel, and Peter Funt, among others, in this issue of American Review. Meanwhile, the United States Studies Centre, publisher of this magazine, is hosting an international conference called the Public Knowledge Forum at the Sydney Opera House on November 3–5, and the distinguished panellists we’ve invited from primarily the US but also here in Australia will weigh into this debate, which has intensified in recent years.

In the US, left-liberals have been so disturbed by the decline of serious investigative broadsheet journalism and the rise of partisan journalism — most notably Rupert Murdoch’s Fox News Channel — that they have campaigned to create a more government-supported media. The blogosphere and cable television, the argument goes, can’t replace what is being lost at home-town papers, so tax dollars should help promote local reporting.

In 2009, John Kerry — the then-Massachusetts senator, former Democratic presidential candidate and now secretary of state — held senate hearings on how the government could help the newspaper industry. “If we take seriously this notion that the press is the fourth estate, or the fourth branch of government”, he remarked, it’s time we consider its importance to democracy. Subsequently, legislation to allow newspapers to become non-profits was subsequently proposed in Congress. A Federal Communications Commission staff report recommended that government subsidise print journalism through a tax on consumer electronics.

Such proposals have not seen the light of the day, and for good reason. If papers were subsidised by governments, would their editors be more afraid of making judgements of certain politicians? If so, surely that would make a mockery of editorial independence, not to mention pose an unfair advantage against commercial rivals. In any case, even the FCC report in 2011 opposed any government bailout of the newspaper industry. Although it acknowledged that the decline of local reporting “manifests itself in invisible ways: stories not written, scandals not exposed, government waste not discovered”, the FCC report went on to argue that most of the answers to the industry’s challenges “will be found by entrepreneurs, reporters, and creative citizens — not legislators or agencies”. Technology is changing so fast, it suggested, that “heavy handed regulatory intervention dictating media company behaviour could backfire.” After all, the state simply cannot engage in the creative destruction that is an essential aspect of innovation.

As the distinguished neo-conservative intellectual Irving Kristol once remarked: “The state cannot and should not be a risk taking institution, since it is politically impossible for any state to cope with the inevitable bankruptcies associated with economic risk taking.”

Joseph Schumpeter would have agreed.